Financial Control

Our previous two posts related the need for your two critical financial tools—your budget and your cash flow forecast. Absent either you do not have financial control of your company, however even with them all you have are the tools. A red letter rule of our work is that people dependent businesses fail; systems dependent business thrive. Financial control must be achieved through systems, procedures and controls. Your budget defines what you can afford; your cash flow forecast when you can afford it. The entire concept of “what and when you can afford” something can be summed up in a story we tell during our workshops.

A homeless man and a suburban housewife were approaching a Starbucks. The homeless man had a dollar bill, three quarters and a dime in his pocket. He looked at the four-dollar coffee and said to himself, “I really want that coffee but I don’t need it.” He went on without going inside. The suburban housewife had plenty of money in her checking account and debit card in hand. She looked at the four-dollar coffee and said to herself, “I really need that cup of coffee.”

The moral of the story—the difference between a want and a need is the balance of your checkbook.

Business owners without real financial control claim to have control by “only buying what we need.” As you can see, what you need is controlled by the balance of your checkbook. A large payment comes in from a client and suddenly many of the things that you previously only wanted are now needs. Cash can never accumulate because your “needs” expand. Your budget is your financial plan designed to produce a desirable, predetermined result. This tool is a continuous work in progress. A system needs to be implemented where each week your Key Variables are tracked against your budget. Customized to the size and abilities of your staff, this task is delegated to a person who is held accountable for that result. Your responsibility as owner is the enforcement of that system. The manager must be trained, given the information that they need to compile the report, and delegated the authority to control the result.

The cash flow forecast monitors the blood in your veins. Each week the report must be compiled and delivered to you for your review and identification of the adjustments required to maintain a positive result. Some sense of urgency regarding sales, collections and expenditures can then be delegated with oversight. Real financial control of your company is achieved through the implementation of systems, procedures and controls that use your two financial tools. The Success Partners of The Fremont Group work with their clients to develop and implement these customized systems. Give us a call.

To find out more about Financial Controls log in (first register if you have not—it is free) and do a search for “financial controls”, “cash flow” or “budget.” You will find numerous other posts on these topics. During the Annual Physical that we provide our members, with an analysis of the financial control system and an Action Plan for their development. MEMBERSHIP BENEFITS